Private Finance Initiative

Kerry McCarthy Excerpts

Thursday 23rd June 2011 Westminster Hall

[Kerry McCarthy (Bristol East) (Lab)]

I, too, congratulate the hon. Member for Hereford and South Herefordshire (Jesse Norman) on securing the debate. It has been a very interesting two-and-a-half hours so far, and I am sure that it will have been a very interesting three hours by the end of the debate. There has been an unusually high turnout for a Thursday afternoon debate, for which we are normally on a one-line Whip. During the afternoon, I gather that we have moved from a one-line Whip to a three-line Whip and back again to a one-line Whip, so hon. Members are free to go at 5.30 pm, if they really want to.

The hon. Member for Hereford and South Herefordshire is right—or he at least makes a valid point for discussion—about a number of issues. He is right in saying that there has not been enough debate and scrutiny about the PFI issue in that past. That is partly because, as the debate has reflected, it often comes down to the devil being in the detail of individual contracts. It is hard to extrapolate from that general point whether the PFI is a bad thing or a good thing, or whether there are particular flaws in some of the contractual processes. I will come on to that in a moment, because it is a valid issue to thrash out.

The hon. Gentleman is also right in saying that not enough data are available on PFI schemes. I shall touch on some of the difficulties with the PFI. As I have said—I do not think he used this phrase—the devil is in the detail. We have heard some micro-detail about issues such as car parking, and the hon. Member for South Northamptonshire (Andrea Leadsom) discussed a hockey pitch that was slightly too short and the difficulty in rectifying that situation. The hon. Member for Newton Abbot (Anne Marie Morris) touched on some local issues. The hon. Member for South Norfolk (Mr Bacon) and others mentioned the naivety of the civil servants who negotiated the deals and that perhaps a lack of commercial nous meant that they did not realise the private sector would seek to maximise profits over the contractual term. Other hon. Members then developed that point, and the hon. Member for Warrington South (David Mowat) talked about multiple procurement failures.

There was then a bit of a debate between the hon. Member for Stroud (Neil Carmichael) and the hon. Member for South Norfolk, who made an intervention, about specifications in contracts. I am talking about this as someone who was once involved in negotiating PFI contracts when I worked for a City law firm at a very junior level—although I was pretty much photocopying the documents and proofreading, rather than doing the heavy duty negotiations. There is an issue about whether the process should be about over-specifying everything in advance—crossing the t’s and dotting the i’s—so that those involved do not get into complicated negotiations throughout the term of the contract. That is a laborious process. Perhaps there is some way of creating a PFI contract that is flexible enough not to get into such situations.

Let me give an example of a school in my constituency. An issue arose when new keys were needed for the room where the sports equipment was kept. Because that was not in the contract, the school was not allowed to get its own keys copied and had to get the contractor to copy the keys. It became a huge thing with huge costs attached, which is obviously ridiculous. However, it would also be ridiculous to have a contract—having photocopied them, I know how huge they are—that specified who was to get the keys copied, if another bunch of keys were needed. Those are certainly valid points, and I do not have the answers on how we can resolve that.

The wider point is whether such a situation is specific to the negotiation of PFI contracts or whether it is an issue with public procurement contracts generally. The hon. Member for Wyre Forest (Mark Garnier) mentioned the asymmetry in negotiating skills between civil servants in the public sector or people in local government and hard-headed business people. That is an issue, but it also occurs in other public procurement realms as well as in relation to PFI schemes. The hon. Member for Wycombe (Steve Baker) developed that into a philosophical discussion on the role of the private sector. Whether the conversation that we are having this afternoon is going down slightly too anti-capitalist a route for him is something that we could explore at greater length on another day.

In the limited time that I have left, I want to focus on a few questions for the Minister, who will respond in a moment. The Government have confirmed that they remain committed to the PFI model that was used by the Labour party. In their technical update last year, they said that they remain committed to public-private partnerships, including those delivered by the PFI, and that such arrangements will continue to play an important part in delivering Britain’s infrastructure.

As we have heard, PFI schemes are still expanding at a significant rate. In March, 61 new PFIs were procured with a total capital value of £6.9 billion, which represents an expansion of more than 10% in the total capital currently committed under PFI. The Government’s support is somewhat surprising given the criticisms that have been aired. Liberal Democrat Members were scathing about the PFI model before the general election. The Deputy Prime Minister described it as

“a bit of dodgy accounting—a way in which the Government can pretend they’re not borrowing when they are, and we’ll all be picking up the tab in 30 years.”

The Liberal Democrats called for a UK infrastructure bank that would reduce the cost of long-term funding compared with the PFI.

Before the election, the then shadow Chancellor said:

“The government’s use of PFI has become totally discredited…Labour’s PFI model is flawed and must be replaced.”

In 2009, he said that

“we are working on reforms to the discredited PFI model that are transparently accounted for and genuinely shift risk to the private sector.”

As I have said, a significant number of PFI projects are in the pipeline, so the work is still continuing. Will the Minister explain where the Government are on reviewing the PFI model? Have any changes been made to the PFI model since the Government were elected last year? Are further issues under consideration? Have the Government managed to save any money from the PFI?

In a document published in January, the Treasury said:

“Value for money is a cornerstone of PFI and the key rationale for its use.”

But the Financial Times reported earlier this year that the Government are struggling to find PFI savings. I appreciate that the pilot project involving the Queen’s hospital, Romford was launched in February to identify where savings could be made. Will the Minister tell us what savings have been found to date? I gather that that hospital was chosen because it is representative of a typical PFI project, so should we presume that the savings that are identified by the Romford project could be used as an example to make similar savings from other projects?

The Government must also decide whether the PFI is right in every case. Much has been said about Labour’s use of the PFI when it was in government, but, unfortunately, I do not have time to go into that. Although the PFI played a major role in delivering the Building Schools for the Future programme, it is a good example of where Labour used the PFI where it would deliver savings to the taxpayer, but used conventional procurement where appropriate. Of the BSF capital allocated up to 2011, 41% was provided through the PFI, with the rest coming from conventional public funding. In the NHS, 118 new hospitals would not have been built without the PFI—88 were provided through the PFI, and 30 were provided through conventional procurement. What principles are the Government working to in assessing the viability of PFI projects? In how many cases have the Government decided to use a non-PFI approach, because the PFI is not seen as value for money?

As my hon. Friend the Member for Walthamstow (Stella Creasy) pointed out in the Public Accounts Committee today, 33 deals, which generated £38 million in profit last year, paid only £100,000 in tax. Treasury officials have confirmed that the tax consequence of the deal was part of the initial assessment of the contract, but subsequent changes, such as moving offshore, were not. Will the Minister confirm that she is looking into that issue? What steps will be taken in future PFI deals to prevent tax avoidance?

Finally, the PFI model allowed enormous investment to take place under the previous Government. It simply would not have been possible on that scale without the PFI, but we accept that the PFI should only be used responsibly and where it delivers the best value for money for the taxpayer. I accept that the issue deserves greater scrutiny, and I look forward to hearing what the Minister has to say about how the Government can take that forward.